The Ministry of Finance has begun a European road show in recent days in preparation for a bond issue. Sources inform "Globes" that the issue will be a large one, amounting to €1 billion.
The measure is logical, and indicates great alertness on the part of Government Debt Management Unit manager, who realizes that the interest rates in Europe are lower than those in the US, where they are rising, while it appears that Europe will join this process at a later stage. This is generating a significant window of opportunity for raising good-quality debt at a low interest rate that will be linked to a relatively weak currency, in comparison with the dollar alternative.
An offering by the Israeli government at the current time and in the right format could be an excellent one at low interest. A glance at the available alternatives for the European investor is enough to understand the window of opportunity the Israeli government is entering.
10-year German government bonds are being traded at a 0.25% yield, UK 10-year government bonds at a 1.35% yield, 10-year French government bonds at a 0.77% yield, 10-year Dutch government bonds at a 0.42% yield, and 10-year Swiss government bonds at a negative 0.18% yield.
Even 10-year Italian government bonds, with all the problems in the local financial system, are being traded at a 1.85% yield. In comparison, 10-year US government bonds are being traded at a 2.45% yield.
Although the Ministry of Finance measure ostensibly appears obvious, sources involved in the particulars of the offering told "Globes" that the benchmark selected by the Ministry of Finance was bonds issued by the government of Poland, a country with characteristics similar to Israel. 10-year Polish government bonds are being traded at a 3.75% yield, so that if the issue and currency hedge costs are added, the cost to the Israeli taxpayer is much higher. Note that a similar bond issue in Israel would take place at a yield of about 2%.
Published by Globes [online], Israel Business News - www.globes-online.com - on January 4, 2017
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